US added 172,000 jobs in May. What it means for the economy.

U.S. employers added 172,000 jobs in May, and data from previous months was revised upward, the Labor Department said June 5, additional confirmation of an economy analysts say is on surprisingly firm footing.

Job gains were concentrated in leisure and hospitality, local government and health care, and the unemployment rate was steady at 4.3%. Average hourly earnings were up 0.3%, an acceleration from April. The report trounced analysts' expectations of an 85,000 jobs gain.

Stocks and bonds tumbled after the report's release. The S&P 500 fell more than 200 points, while the Nasdaq Composite, which is most sensitive to rising interest rates because of its heavy tech sector exposure, sank more than 4%, 1.122 points.

Bonds, which lose value as costs increase throughout the economy, also sold off. The benchmark U.S. 10-year Treasury note was up nearly 7 basis points to about 4.547%. Bond prices move in the opposite direction as yields.

Reaction to the blockbuster jobs report

"Let’s get ready to rumble is what the shocking jobs numbers are telling us about the economy," said Christopher Rupkey, chief economist of FWDBONDS LLC, in a note out just after the release. "It’s classic supply and demand. There is continuing demand for business services so companies hire more workers to supply what consumers and other businesses demand."

The White House took a victory lap after the report was released.

"There is clear momentum in the American economy as a result of President Trump’s proven economic agenda of tax cuts, deregulation, and energy abundance that’s unleashing the private sector," White House Senior Deputy Press Secretary Kush Desai wrote on X. "The Trump administration is committed to building on this success with more job, wage, and economic growth for the American people in the months ahead."

White House National Economic Council Director Kevin Hassett said Friday that the report shows an economy with “about the strongest market of my lifetime." Speaking on CNBC, Hassett suggested that despite strength in hiring, the Federal Reserve can watch inflation and wait before taking any action.

“It’s a supply-side driven job market boom, which I think means the Fed can watch the inflation numbers and wait a while before it does anything about it,” he said.

That's at odds with what private-sector analysts who spoke to USA TODAY, not to mention some bond investors, think.

The report bumps up what is now widely expected to be a hike, rather than a cut, by the Federal Reserve at some point this year, Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research, told USA TODAY.

"I think a day like today shows that any of these individual numbers can move those expectations," Sonders said.

And even though many recent economic reports have painted a rosy picture, there are some signs of "constraints" on consumers, who remain the backbone of the U.S. economy. Sonders is paying attention to the dwindling savings rate, the uptick in consumer delinquencies and a slowly rising long-term unemployment rate.

Why is the jobs report so important?

Investors, economists, financial analysts and all kinds of policymakers consider the Labor Department’s first-Friday jobs report one of the keys for understanding the U.S. economy.

“It helps shape the outlook for wages, consumer confidence and the Federal Reserve’s next steps,” ConnectOne Bank Founder and CEO Frank Sorrentino said in an email to USA TODAY before the report’s release.

Professionals have had a tough time gauging the economy in recent months. Measures of consumer sentiment are at all-time lows, even though employment has been stable, if not blockbuster. Inflation has been running hot for much longer than most forecasters expected and has worsened this year amid the war in Iran, yet Americans continue to spend.

“For households, the key questions are what this means for job security, income growth, borrowing costs and monthly budgets,” Sorrentino added. Despite all the implications for fiscal and monetary policy, he said, “consumers should stay focused on their own financial picture and remain thoughtful about spending, debt and savings.”

How strong has the job market been?

Data released before Friday’s report suggested the job market has been finding its footing.

Among other things, the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), released June 2, showed openings rose to the highest level in nearly two years.

In April, the most growth was seen in professional and business services, which had a gain of 668,000 jobs, a record going back to the origins of the report in 2000, said Ken Kim, a senior economist at KPMG, in an analysis.

Other measurements of job market health have also been surprisingly strong. Gusto, which processes payroll for more than 500,000 small businesses, said June 2 that those firms added 83,900 net new jobs last month, the fourth consecutive month of gains. 

And payroll processor ADP said 122,000 private-sector jobs were added in May in its June 3 report. ADP’s track record in predicting the Labor Department’s report has been imperfect in the past, however.

After revisions to earlier months, employment in March and April combined was 93,000 higher than had been reported, the Labor Department said.

“The labor market has shown signs of cooling in some areas, but from what we see on Main Street, many businesses are still operating, hiring selectively, investing cautiously and adapting to higher costs. That points to an economy that is moderating rather than falling off a cliff,” Sorrentino said.

What does the jobs report mean for the Fed?

Because inflation has remained high and the economy continues to grow, traders have increasingly started to expect an interest rate increase, rather than a cut, this year. As of Friday morning, the CME FedWatch tool forecast a 43% likelihood that rates will be higher by the end of the year and only a 1% chance that they will be lower, a stance weighted more heavily toward rate hikes than before the report.

“We believe the Federal Reserve will need to raise rates in the autumn,” KPMG's Kim wrote on June 2.

Schwab's Sonders notes that amid an economy in which inflationary pressures are starting to become more widespread, it's important to remember the central bank rarely implements one rate change in isolation.

Many economists expect that the central bank will take initial steps toward preparing the market for such a move when it meets next in a two-day meeting beginning June 16.  

The Fed's signal will come from the order in which it lists the risks to the economy in its meeting statement. In recent months, policymakers have noted the need to consider "readings on labor market conditions, inflation pressures and inflation expectations." If inflation is listed first at the June meeting, it may signal a shift in strategy.

Reach Rachel Barber at [email protected], follow her on X @rachelbarber_, and subscribe to her newsletter "Making More of Your Money" here.